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Macquarie Bank's tearaway life as an international juggernaut
shows no sign of abating. This week the bank even spread its wings
into aged care in Canada with the $528 million purchase of
Leisureworld, the largest private operator of long-term care homes
in that country.

Macquarie is a unique beast in the arcane world of international
investment banking, functioning over a wide range of business
areas, and bringing the different pieces to work together to wring
maximum benefit from all its deals. These two factors have
underpinned profit growth that has pushed the share price from $20
to $50 in two years.

Macquarie's businesses range from banking, funds management,
treasury and commodities, financial services and stockbroking to
the giant investment banking operation that now accounts for
probably half the group's earnings. Of its 2000 staff, more than
half are now based overseas.

Brett Le Mesurier, an analyst with Wilson HTM, says Macquarie
brings different pieces together. "The businesses are separate but
they do help each other on deals. If Macquarie launches a fund,
Macquarie Equities does the underwriting and they get fees on that.
The corporate advisory business will get fees for putting the deal
together, and there are ongoing investment banking fees as well.
They like to get a fee from as many places as possible."

This week's $534 million Canadian aged-care purchase is another
example of the planning that has fed the Macquarie machine. It
follows on the heels of a deal in Australia in which Macquarie
participated in the purchase of 14 aged-care homes under the label
Retirement Care Australia, for an undisclosed price.

The bank will put the purchases into a fund that will be sold to
investors. Macquarie is not saying whether this fund will be a new
or existing vehicle, but the former is more likely as the aged-care
asset class is not represented in its current offering.

This approach of buying assets and using them to seed funds has
created billions in market value in recent years as listed
offshoots, such as toll-road operator Macquarie Infrastructure and
Macquarie Airports, raise money and buy assets across Australia,
Europe and North America.

In 2004 Macquarie raised more than $10 billion across the world
and launched a series of funds. These include the $1 billion DUET
fund, which bought the Dampier-to-Bunbury pipeline, and the $1
billion MIC offering, which was floated on the New York Stock
Exchange, taking the Macquarie model to US share investors for the
first time.

Macquarie's formula has allowed the bank to act swiftly in the
marketplace. A case in point is the Macquarie-backed ConnectEast
consortium, which won the right to build the Frankston-to-Mitcham
tollway in a two-horse race with Transurban last October. Macquarie
won the $2.5 billion bid by coming up with a deal that included a
construction price some $250 million below Transurban's, presumably
because it was able to provide a plain-vanilla set of parameters to
its construction partners, unlike its opponents.

After winning, Macquarie used its pipeline to the financial
markets: it floated ConnectEast for $1.1 billion less than a month
after the winning bid was announced. In that way Macquarie left
construction risk with the Leighton group and performance risk with
the newly listed ConnectEast vehicle, in which Macquarie retained
only a small stake.

Behind Macquarie's unique structure lies the vision and
temperament of one man, chief executive Allan Moss. Appointed to
head the bank in 1993, Moss has the appearance of a measured and
conservative man.

But this is far from the truth. Moss has recreated the bank's
culture, from one of skimming the cream in advisory deals to
putting up large licks of its own capital to buy asset portfolios
that it later sells back to the market at a profit.

It has proved a very profitable strategy but, if not managed
well, it could be dangerous.

UBS analyst Jeff Emmanuel agrees Moss has transformed Macquarie,
but says the contribution of investment banking chief Nicholas
Moore has been crucial. Moore, he says, "brought the very sharp
focus on infrastructure" that allowed Macquarie to build its stable
of infrastructure funds, which are expected to earn $320 million in
fees for the bank for its March 31 year.

Moss' predecessor, Tony Berg, had a sharp eye for risk and would
be uncomfortable with the business that has developed since Moss
took over, observers say. Moss has introduced a new structure at
Macquarie to manage this risk-taking approach to merchant
banking.

In Berg's time all divisional performance was ultimately the
responsibility of the chief executive.

Under Moss responsibility for growth has been left with
divisional heads. Moss takes two key roles: risk oversight, and
relationship building and maintenance. In other words, he ensures
the business keeps rolling in and maintains a close watch on how
the bank's money is invested.

To keep risk in check in a world where Macquarie is regularly
taking big licks of it onto its own balance sheet, Moss has created
an aggressive and independent risk-analysis team that looks over
the shoulders of the different divisions to ensure the deals they
are putting together fall within acceptable risk criteria. It's not
always popular within the bank, but the risk team has kept the
wheels on Moss's vision.

As a result, Macquarie's approach of buying assets in its own
name has not made it a more risky business. Brett Le Mesurier says
Macquarie's X-factor is not so much its management of assets as
financial re-engineering to maximise returns.

"They hold themselves out as great structurers of business,
generally through regearing," he says. "They're good at
understanding what assets fit together with their existing assets
and developing a coherent strategy for a particular fund that
investors will find understandable."

So successful has this approach been that "they have a record of
paying what appears to be a lot for an asset, putting it into the
fund and then the value of the securities in the fund
increases".

"They end up not looking stupid. They did it with Sydney Airport
and with communications towers," Le Mesurier says.

Coming up trumps when the market thinks you have paid too much
is not alway easy and Macquarie has been prepared to wear the
resulting opprobrium until it proves the market wrong. Sydney
Airport and the communications purchases are prime examples. The
market dropped Macquarie like a hot scone when it paid more than
$500 million above its competitors in the Sydney airport
privatisation and the investor reaction, led to the communications
float being restructured. Now both deals are seen as major
Macquarie successes.

Macquarie is now developing acolytes in the market. When Babcock
& Brown listed late last year at $5 (it is now more than $10)
it was seen as the creation of a new Macquarie. There is a touch of
irony in this because Babcock has been taking risk on its books -
often in conjunction with its high net worth private clients - for
years.

Babcock has stepped into the Macquarie space on the stock
exchange, giving it more capital to develop in the infrastructure
funds business. The move demonstrates that "others are starting to
see Macquarie's strategy as very attractive," says Jeff Emmanuel.
Babcock's appearance should not threaten Macquarie in the short
term, as there is a shortage of competent players available to take
on infrastructure deals worldwide rather than a shortage of deals
themselves, Emmanuel says.

Babcock took a step in front of Macquarie by raising $550
million for its listed ALLCO Equity partners, a cashbox without
assets, on the promise Babcock would seed it with profitable
investments. Macquarie has also flagged a $1 billion cashbox
listing.